Start your (electric) engines folks. The metals market has gone bonkers for batteries. Electric car batteries, that is.
The price of nickel, zinc, and aluminium all hit multi-year highs earlier this week. Traders were quick to pounce, cashing in on the surge in prices.
All thanks to the speculative outlook that the electric vehicle (EV) market is going to ramp up demand in the near future. It hyped up the market, with traders no doubt looking at the strong gains in lithium and cobalt as a measure for what may come.
Nickel Was the Big Winner
Nickel in particular was the big winner this week. It had its biggest two-day increase in over three years. Currently trading at US$12,690 per tonne — up by 7.45%! That’s a serious upswing for a metal that has already had a strong 2017.
It’s good news for Aussie nickel miners, as the Sydney Morning Herald reports:
“Australian nickel producers have been in a lot of strife in recent years, but we’re starting to see the electric vehicle players begin to shore up supply,” says Romano Sala Tenna, portfolio manager at Katana Asset Management.
“While the actual electric vehicles are probably two or three years away, this is extremely good for Australian producers because we have really great grades of nickel.”’
And that last point, ‘great grades’ could be the big factor. Because most battery producers will only take the higher grades.
But don’t count your chickens just yet. Capital Economics analyst, Caroline Bain believes the hype around the EV boom is premature. She says,
‘It’s going to be a long time before electric vehicles have a material impact on overall demand,
‘It is good news for nickel that it’s got a longer-term future, but in short, it’s a bit overdone.’
Other analysts share Ms Bain’s outlook. BMO Capital Markets Commodity Director, Colin Hamilton believes nickel’s rise is ‘still a stainless-driven demand story for the next decade’. Echoing Ms Bain’s view that batteries will be a factor in the metals future, but not any time soon.
Meanwhile in other markets…
Copper Price — US$6,917 per tonne: +1.7%
Zinc Price — US$3,330 per tonne: +0.3%
Gold Price — US$1,276 per ounce : +0.2%
Iron Ore Price — US$59.45 per tonne: +1.4%
Copper and Zinc Cash in on EV Jump as Well
Copper has smashed expectations in 2017 and traders are now trying to make heads or tails of where the metal will head next year. As Bloomberg reports:
‘Copper supply disruptions earlier this year and bullish calls regarding a 2018 supply deficit are supporting prices near a three-year high. At the same time, voices in the market are hawking peer elements lithium and nickel based on electric vehicle growth scenarios, which also heavily involve copper.’
Though, similar to nickel, the hype could be overblown. EV sales haven’t really impressed yet. The bestselling EV, the Nissan Leaf, hasn’t even hit 300,000 sales. It seems the market has gotten a bit over-excited prematurely, again.
The hype is deserved, it’s just a little too early to be pricing it into the market yet.
It hasn’t stopped BHP Billiton Ltd [ASX:BHP] from jumping on the hype bandwagon though. They’re saying that EV’s could raise global copper demand by 50% in the next 18 years. Proof that the miners aren’t going anywhere anytime soon.
Meanwhile zinc, which has also climbed higher, could be the bigger winner. Zinc’s price was pushed higher by the EV story, but fundamentals may keep it there. As Ms Bain notes,
‘Zinc has got a much better (picture) underpinning it — exchange stocks are very low, supply is tight,
‘Zinc has got a little ahead of itself, but it has a much better underlying story.’
It’s going to be interesting to see how it all plays out over 2018 that’s for sure.
Gold Reacts to the New US Tax System
Trump and Republican comrades have unveiled a huge tax overhaul. The 15% cut to corporate tax rates is going to be the big story, with a proposed rate of just 20%. The news sent the US dollar down along with 10-year treasury yields. That caused a small amount of price volatility for the yellow metal.
The appointment of new Federal Reserve Chairman, Jerome Powell didn’t weigh too heavily on the market either. Though CNBC reports that:
‘Markets are pricing a 97 percent likelihood of a rate increase in December, according the CME Fedwatch tool, and the pace of subsequent rises could be faster if the Republican tax proposal was enacted and succeeded in speeding economic growth.’
A sign that there could be more downward pressure for gold in 2018.
Iron Ore Bucks its Downward Trend
After hitting a fresh four-month low earlier this week, iron ore has finally bounced back. It’s thanks to revised gains in the futures market as buyers snap up perceived bargain prices. Though clearly iron ore is still feeling the pain from China’s crackdown on pollution.
For now futures are up, which should hopefully translate to a higher spot price.
It seems iron ore demand just can’t compete with the strength in base metals. You’ve got to be able to sort the winners from the losers. Which is why we’ve done a lot of the legwork for you. Check out our top 10 Aussie mining stocks right here.
Junior Analyst, Markets & Money